A bit perplexing. They assess the results as slightly negative yet raise their target by ten bucks. GLTA

Intact Financial Corp.

(IFC-T) C$206.17

Q3/22: Auto Slightly Weaker; Offset by Expenses & Inv. Income Event

IFC reported Q3/22 operating EPS of $2.70 (down 6% y/y) vs. our estimate of $2.73 (consensus: $2.76). EPS was relatively in line with our estimate, reflecting a weaker top-line offset by higher investment income and lower underwriting expenses. TTM OROE was 15.0% (14.7% estimate). BV was down 2% q/q (impact on AFS from rising rates). Share repurchases were modest in Q3/22.

Impact: SLIGHTLY NEGATIVE

  • NEP was flat y/y and was ~$42mm or 1% lower than forecast, reflecting lower- than-expected premiums in domestic personal auto (competitive pressure) and the U.K. Canadian DWP was up 3% y/y, reflecting 7% and 4% growth in personal property and commercial, respectively (rate momentum). Personal auto top-line growth remains under pressure (-1% y/y) as IFC remains ahead of market in taking rate increases (hurting volume growth). Rate increases are mid-single- digits, moving to high-single-digits by year-end. UK&I DWP was down 4% y/y (cc), reflecting footprint optimization (2-points) and the sale of Middle East operations (5-points). U.K. commercial remains strong.

  • Underwriting income of $362mm was $16mm or 4% lower than our forecast, reflecting weaker results in domestic personal property and U.K. personal lines. CAT losses and PYD on a total company basis were relatively in line with our estimate. On an underlying basis, the total company claims ratio was 59.1%, up 535bps y/y and was slightly weaker than our forecast. Lower expenses made up the difference relative to our estimate. Canadian personal auto underlying claims ratio deteriorated slightly faster than anticipated (inflation), increasing 972bps y/ y (forecast: ~825bps). While PYD remained strong, we expect inflation to lead to some weakness in PYD going forward. U.K. personal lines were much weaker than expected, reflecting reserves for inflation.

    TD Investment Conclusion

    We expect the ROE to remain near 14% in 2023 without the benefit of material buybacks. We believe IFC's capital position leaves ample capital to buy back stock and improve operating ROE to the mid-to-high-teens. Applying a target P/B (excluding AOCI) of 2.4x, we arrive at our target price of $230.00 (up from $220.00). In the current environment, IFC's stable BV/share growth and resilient business model support our target price and BUY rating.